Most people are aware that there are many different types of trusts available in estate planning. A testamentary trust is a specific type of trust that does not become effective until after your death. This is quite different from a living trust, which goes into effect when you create it and remains in effect during your lifetime. If you are trying to determine whether a testamentary trust is what you need to include in your estate plan, let our Overland Park trust lawyers help you decide.
How trusts work generally
Creating a trust agreement gives you a means for transferring your property to the name of the trust so that it can ultimately be transferred to your named beneficiaries after your death. The trustee is the person who manages the property until it is distributed to your beneficiary. One benefit of having a trust is that the property included in the trust does not have to be distributed through the probate process.
What is special about a testamentary trust?
A testamentary trust is a specific type of trust that is included in your last will and testament and provides for the distribution of all or part of your estate. A testamentary trust will usually include the proceeds from a life insurance policy that was held by the grantor. You can have more than one testamentary trust included in the terms of your will.
The difference between a living trust and a testamentary trust
A non-testamentary trust, also referred to as a living trust, becomes effective when the trust is signed and notarized and the property is funded or transferred to the trust. These types of trusts are referred to as “living” trusts or “inter vivos” trusts because they essentially go into effect immediately, while the grantor is still living. A living trust can also be created as either revocable or irrevocable, depending on the purpose of the trust.
In contrast, a testamentary trust will not become effective until the death of the grantor and, at that point, it becomes irrevocable. Being irrevocable means it cannot be modified or canceled. However, since the trust does not take effect until after death, the grantor is able to modify the terms of the trust at any point during his lifetime. Our Overland Park trust lawyers can advise you about your choices.
Creating a testamentary trust for your children
For many people, testamentary trusts are chosen for the benefit of young children, relatives with disabilities, or others who may inherit a large sum of money. One reason is that minors cannot receive substantial gifts directly, as those assets need to be managed by an adult. Similarly, someone with a disability may need assistance in managing the trust property, depending on the type of disability. Including a testamentary trust in a will, however, allows you to leave a gift to these individuals while identifying your selected guardian as trustee of that property. The trustee will manage the trust until the minor reaches an age when he or she can manage the property.
When does a testamentary trust take effect and how long does it last?
A testamentary trust essentially becomes effective upon the completion of probate administration, upon the death of the grantor of the trust. This type of trust lasts until it is set to expire, which generally depends on the specific terms of the trust agreement. For trusts that have been established for minors, the expiration of the trust typically occurs when the minor has reached the age of majority or older, when he or she graduates from school or gets married. Our Overland Park trust lawyers can help you establish this type of trust.
The role of the probate court in administering a testamentary trust
Just as with most trusts, the probate court supervises the administration of the trust from the time the grantor dies, and the trust goes into effect until the point when the testamentary trust is set to expire. It is the court’s job to ensure that the trust property is being handled properly. Court supervision also means that, depending on how long the trust remains in effect, the legal fees can become quite substantial. This is a factor that needs to be considered when determining whether to include a testamentary trust in your estate plan.
Choosing the right person to be the trustee of your testamentary trust
As the person creating a testamentary trust, you can choose anyone to serve as trustee, however, it should be someone you are confident will act in the best interests of your children or other beneficiaries. It is also very wise to name an alternate or successor trustee in the event the person you have chosen declines or cannot serve in that role for any reason. If not, the court will be required to appoint a trustee.
How to know whether a testamentary trust is the right option for you
In some circumstances, a testamentary trust may be the best option if your estate is small in comparison to the life insurance proceeds that will be paid to the estate after your death. Another benefit is that the potential cost of establishing a testamentary trust is usually inexpensive and can be included in the preparation of your will and other estate planning tools.
Download our free estate planning worksheet today! If you have questions regarding living trusts, testamentary trusts or any other estate planning matters, please contact the experienced attorneys at Gaughan & Connealy for a consultation. You can contact us either online or by calling us at (913) 262-2000. We are here to help!
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